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

The appellant manufactures audio equipment at a factory at Pune. It was served with a86, 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 onservice 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 be carried 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 provideservice 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 notthe deduction on account of that portion of normal trade discount as described by them, to the extent of 2% of the discount attributable toservice and advertisement incurred by the dealers on behalf of the assessee"

Court's reasoning:
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